Tesco gets approval for Indian investment

Monday 30 December 2013 10.48
Tesco's proposal to invest $110m to set up supermarkets in India gets approved
Tesco's proposal to invest $110m to set up supermarkets in India gets approved

India's Foreign Investment Promotion Board, a unit of the finance ministry, has approved Tesco's proposal to invest $110m to set up supermarkets in the country.

Earlier this month, Tesco became the first foreign supermarket operator to venture into India's $500 billion retail sector after announcing it had applied to buy a 50% stake in Tata Group's Trent Hypermarket Ltd.

The world's third-largest retailer already had a franchise agreement to provide support to Trent's Star Bazaar chain.

The decision brings much-needed relief to the Indian government, which had failed to attract a single application since September 2012 when it allowed foreign investors to own up to 51% of their operations.

Some retail analysts have tipped India as one of the last great untapped markets for supermarkets.

It is also a sign that Tesco remains ambitious to expand abroad, despite its decision to close loss-making businesses in Japan and the US and a big investment drive to turnaround its underperforming stores in Britain.

While the proposed investment is not large, the move by Tesco will be seen as a vote of confidence in India's potential at a time when the economy is struggling and grew at its slowest pace in a decade last fiscal year due largely to a lack of corporate investment.

The ruling Congress party paid a high political price for opening the retail market, losing a key coalition partner over worries the policy will wipe out India's millions of family-owned grocery stores.

The government and global retailers say the policy will create jobs and help overcome chronic bottlenecks in food supply that means much farm produce rots and has made high food inflation a structural problem. Vegetable prices have risen 115% since March.

But unclear rules governing foreign participation and political opposition ensured no global retailer had applied to enter the country with retail stores until now.

Recently the world's biggest supermarket Wal-Mart Stores called off its Indian wholesale joint venture with Bharti Enterprises, citing unfriendly regulations. 

Tesco plans to invest in Star Bazaar's stores in the western state of Maharashtra and neighbouring Karnataka. Star Bazaar currently runs 16 stores in southern and western India.